Inflation rises to highest level for 2.5 years

Tuesday 17 May 2011 - Editorial Assistant

CPI annual inflation grew 0.5 per cent to 4.5 per cent between March and April, with the Office for National Statistics reporting that the rise was fuelled by air transport, alcohol, tobacco and gas.

Clothing & footwear was one of the main downward pressures on inflation during the month, but the timing of Easter was said to have had a significant impact on the overall rate hike, which is now at its highest level since September 2008.

Air and sea transport fares, which rose to coincide with the traditional Easter getaway, had the greatest impact on inflation, while the increase in excise duties on alcohol and tobacco introduced in March contributed to prices rising by 5.3 per cent month-on-month.

This prompted some financial commentators to change their estimations for when the Bank’s Monetary Policy Committee will increase interest rates from their record low of 0.5 per cent, with experts now increasingly predicting that the cost of borrowing will rise before the end of 2011.

Kevin Mountford, Head of Banking at price comparison website Moneysupermarket.com, said: “Consumers are not only battling rising day-to-day costs and a reduced level of disposable income, many are also having to deal with pay freezes, which means in real terms, their incomes are being reduced.

“Many families will feel like their finances are approaching breaking point, however, there are still small steps they can take to help them save some vital pennies.”